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Last month, the X-Prize Foundation announced the winners of the Wendy Schmidt Oil Cleanup Challenge. The challenge was created to spur the development of more effective oil spill cleanup methods. Specifically, the challenge offered $1.4 million in prizes for the development of removing oil from the ocean’s surface. The aim was to double the industry’s best oil recovery rate in controlled conditions. The winning team, Elastec/American Marine, demonstrated an oil recovery rate more than three times the industry’s previous best and was awarded the top prize of $1 million.

This is another example of how technology inducement prizes can spur the development of valuable technologies, and further evidence that such prizes are far more cost-effective than ex ante R&D grants or government investments in speculative ventures like Solyndra. The latter may be more politically popular, but prizes would be a better use of taxpayer dollars. As I’ve argued at length, if we’re serious about problems like global climate change, we should invest more in prizes and less in conventional approaches to government-sponsored R&D.

Todd discusses his work with WRI on two pilot projects that are connecting the buyers of ecosystem services with the sellers of the services. Among other things, these projects hope to invest in forests along the Crooked River in Maine, which currently act as a natural filter for the water supply to the city of Portland. For more, see this podcast with Todd or this PERC Policy Series on ecosystem services.

Today the Supreme Court hears oral argument in Sackett v. EPA, a challenge to the federal government’s claim that landowners (and other regulated entities) may not obtain pre-enforcement review of an administrative compliance order under the Clean Water Act. I previewed the case before. Here is how the WSJ reports on the case this morning:

Based on “any information”—even a newspaper article or an anonymous tip—the Environmental Protection Agency can issue an administrative compliance order directing a property owner to stop discharging pollutants or restore a damaged wetland. The government says such directives, similar to stop-work orders by local zoning inspectors, allow it to respond rapidly to prevent environmental damage.

But business groups contend that the EPA acts as a judge and jury, forcing property owners either to comply, often at great expense, or risk penalties of up to $37,500 a day if the agency later obtains a court ruling to enforce its directive.

Challengers say that by issuing compliance orders without first giving property owners a chance to contest them in court, the EPA skirts the federal law and the Fifth Amendment guarantee of due process.

The NYT editorializes on the case today as well, suggesting that the Sacketts must lose because (gasp) their position might benefit corporations.

This case goes far beyond the Sacketts’ right to fill in their lot without a permit. If the Supreme Court allows them to seek pre-enforcement review, it will be handing a big victory to corporations and developers who want to evade the requirements of the Clean Water Act.

One fact the NYT (and many commentators) ignore is that allowing pre-enforcement review of administrative compliance orders does not relieve regulated parties of the obligation to comply with such orders. Judicial review does not automatically stay enforcement of the order, so allowing regulated entities their day in court does not necessarily entail allowing them to continue to engage in allegedly polluting behavior. It does, however, prevent agencies from using enforcement leverage to force compliance with rules that may not even apply. In the Sacketts’ case, for instance, the whole question is whether their land is subject to federal regulation in the first place. Granting pre-enforcement review does not automatically entitle them to continue building their house, but it does prevent the EPA from piling on penalties before the jurisdictional question is answered.

I specialize in western water markets. Even so, I am currently working on a project in 9 eastern states. This project has made me realize the eastern United States will face some serious water challenges. This isn’t the first time I’ve made this observation; it has just become that obvious to me. And, here’s four reason’s why:

1. The wrong doctrine. The west’s prior appropriation doctrine receives plenty of criticism, but one thing it does successfully is allocate a private property right to water, regardless of land ownership. Attaching water to adjacent lands and allocating a reasonable use–as does the riparian doctrine–is the foundation for failure. For example, what is reasonable use? How can you transfer water where it is needed most? Who is using water and who is not? How much water is being used? Etc.

2. No measurement. This isn’t only a problem in the east; the west needs to make great strides in measuring water use. However, in many cases the east will allocate groundwater permits under “regulated riparianism” with no measurement requirements or tracking. Some eastern states don’t even require a permit for groundwater use. Sound good? NO.

3. Planning doesn’t solve market problems. Dwight Eisenhower said it best: “In preparing for battle, I’ve always found plans are useless, but planning is indispensable.” Rather than being market driven, the east appears to be large-scale water planning oriented. Planning is good, but in my experience, plans don’t solve the local supply and demand challenges or allocate resources efficiently. Markets do.

4. Lack of clearly defined water rights. This plays on #1, #2, and #3 but it is the biggie, so I saved it for last. If the east, west, north, and south don’t clearly define rights to water, we are all in trouble. As with land, clearly defining these assets will allow for markets to trade these resources efficiently. And, yes these markets will bubble, and yes these markets will burst, and yes these markets will lead to creativity, innovation, and solutions that didn’t exist previously.

At SCOTUSBlog, Lyle Denniston characterizes the oral argument in Sackett v. EPA as “A Weak Defense of EPA.” Perhaps that’s because the EPA’s position, applied in this case, is difficult to square with traditional notions of due process. Denniston highlights one passage of the oral argument (transcript) that highlighted the nature of the government’s position:

JUSTICE ALITO: Mr. Stewart, if you related the facts of this case as they come to us to an ordinary homeowner, don’t you think most ordinary homeowners would say this kind of thing can’t happen in the United States? You don’t — you buy property to build a house. You think maybe there is a little drainage problem in part of your lot, so you start to build the house and then you get an order from the EPA which says: You have filled in wetlands, so you can’t build your house; remove the fill, put in all kinds of plants; and now you have to let us on your premises whenever we want to. You have to turn over to us all sorts of documents, and for every day that you don’t do all this you are accumulating a potential fine of $75,000. And by the way, there is no way you can go to court to challenge our determination that this is a wetlands until such time as we choose to sue you.

The federal government’s attorney did not have much of an answer other than to say that, in most cases, there would have been some prior communication between the landowner and the EPA or Army Corps alerting the landowner to the potential problem, at which point the landowner could have filed a permit. Yet whether a permit is necessary in the first place is part of what is at issue, which prompted Chief Justice Roberts to characterize the federal government’s position as: Since you didn’t ask us whether we could regulate your property, we get to do it. After all, Roberts noted later, most landowners will not violate the order and risk the resulting accumulation of penalties just to get their day in court. As Justice Scalia noted later, in most cases, if the government is threatening to prosecute you, rather than “wait for the prosecutor to drop the hammer,” you may go to court to seek a declaratory judgment to resolve the question. Yet here, where the government has done more than merely threaten prosecution, no such pre-enforcement review is available. Worse, refusing to comply with the government’s order is, itself, a legal violation. It would be one thing to defend this sort of system where time is of the essence — such as where prompt action is necessary to prevent severe, ongoing contamination, such as from a hazardous waste spill. It’s quite another to try and defend this as “due process” when what is at issue is a the deposit of clean fill on a half-acre plot of land that may not even be within the scope of federal regulatory jurisdiction in the first place.

There seems little doubt from the oral arguments that the Sacketts will prevail before the Supreme Court, and that the lower court decisions will be reversed. (Having attended today’s arguments, I count at least seven justices siding with the Sacketts, and it’s conceivable that the opinion may even be unanimous.) The more difficult–and intriguing–question is how sweeping or narrow a decision will the justices issue? Will the anticipated ruling against EPA be confined to enforcement of the Clean Water Act, or might it extent to a host of other federal environmental laws that EPA frequently enforces through the issuance of ACOs? And will the Court base its decision on exclusively on statutory grounds, or will it follow the urging of several of Sacketts’ amici to find that the lack of judicial review of ACOs represents an unconstitutional deprivation of due process?

Katharine Coman’s “Some Unsettled Problems of Irrigation,” published in March 1911 in the first issue of the American Economic Review, addressed issues of water supply, rights, and organization. These same issues have relevance today, in the face of growing concern about the availability of fresh water worldwide. The central point of this article is that appropriative water rights and irrigation districts that emerged in the American West in the late nineteenth and early twentieth centuries in response to aridity to facilitate agricultural water delivery, use, and trade raise the transaction costs today of water markets. These markets are vital for smooth reallocation of water to higher-valued uses elsewhere in the economy and for flexible response to greater hydrological uncertainty. This institutional path dependence illustrates how past arrangements to meet conditions of the time constrain contemporary economic opportunities. They cannot be easily significantly modified or replaced ex post.

Libecap's full article is available here. Nobel laureate Elinor Ostrom's reflection is also online.

A lot has been written about PERC’s Enviropreneur Institute lately – and for good reason. While many alarmists tout the demise of clean air, protected forests, and endangered animals, enviropreneurs work to find viable market solutions for improving environmental quality. As Co-Director of PEI Reed Watson notes:

What distinguishes enviropreneurs from other environmentalists? One answer is their vision; enviropreneurs see the world in a unique way. They see the prospect for cooperation where others see unsolvable conflict. They see unwritten contracts where others see unwritten regulations. They see new frontiers for free market environmentalism where others see only market failures.

One such enviropreneur, Brett Howell, has taken a dive off Florida’s coast and is bringing market-based solutions underwater. Florida’s coral reefs stretch more than 350 miles and support hundreds of different species of coral and fish.

It turns out, however, that 70 to 80 percent of Florida’s coral habitat has been destroyed over the past 40 years. Staghorn and Elkhorn coral, two species found off Florida’s coast, are even listed under the Endangered Species Act.

In February, Howell and PERC hosted a workshop in Key Largo exploring the question of whether contracts can help save coral reefs. Howell is working to develop a market for coral reef restoration by identifying who benefits from a coral reef and who is willing to pay for its restoration. Read more about their conclusions and Howell’s next steps here in the latest issue of PERC Reports.

The regulators lost to the regulated yesterday in Sackett v. Environmental Protection Agency. As Ilya Somin notes, the Supreme Court’s unanimous opinion held that property owners and other regulated parties may challenge administrative compliance orders issued by the Environmental Protection Agency under the Clean Water Act. This is a small, yet significant, victory guaranteeing a modicum of procedural protection for those subject to regulation under the CWA.

In this case, the EPA issued an ACO to the Sacketts alleging they had filled wetlands without a federal permit and directing them to take remedial action or face civil penalties. The Sacketts had sought an agency hearing on the matter, but the EPA declined. So the Sacketts went to court. The federal government maintained that judicial review of the ACO was unavailable unless and until the EPA filed a civil enforcement action against them. The U.S. Court of Appeals for the Ninth Circuit concurred, only to be reversed by the Supreme Court.

Writing for the Court, Justice Antonin Scalia explained that an ACO can be challenged as a final agency action under the Administrative Procedure Act, as the order represents the conclusion of the agency’s consideration of the question and is, itself, the source of a binding obligation on the regulated party. The order “has all of the hallmarks of APA finality” and is thus presumptively subject to judicial review. As the CWA does not expressly or impliedly preclude judicial review, and there is no other adequate remedy in court, the Sacketts can have their day in court.

Justice Scalia’s opinion for the Court is quite narrow, and lacks the rhetorical flourishes we’ve come to expect in his environmental opinions. The Court had no occasion to reach the due process issues lurking below the surface of the case – specifically whether the Sacketts would be entitled to some opportunity to be heard, if not in court then before the agency, before they could be subject to fines for violating the administrative compliance order. Although Justice Scalia noted the continuing uncertainty over the scope of federal regulatory jurisdiction under the CWA, particularly with regard to wetlands, his opinion made clear the Court was expressing no opinion as to whether the EPA properly asserted jurisdiction over the Sacketts’ land. Solely at issue was whether the Sackett’s could challenge the EPA’s assertion of jurisdiction and claim that the Sacketts had violated federal law by filling jurisdictional wetlands on their property without first obtaining a federal permit. Justice Ginsburg wrote a brief concurring opinion stressing this point.

Justice Alito’s concurring opinion stressed the continuing regulatory uncertainty to which private landowners are subject under the Clean Water Act. The statute’s reach is “notoriously unclear,” and yet landowners can face substantial fines if they fail to obtain the requisite federal permits before modifying wetlands on their land. According to Alito, the Court’s decision in Sackett offers landowners “ a modest measure of relief” in that it now ensures that landowners may seek judicial review of an agency order directing them to cure CWA violations or face additional fines. Yet according to Alito, the burden on landowners remains substantial.

the combination of the uncertain reach of the Clean Water Act and the draconian penalties imposed for the sort of violations alleged in this case still leaves most property owners with little practical alternative but to dance to the EPA’s tune.

According to Alito, real relief will only come when Congress or the agencies provide a “reasonably clear” jurisdictional rule defining what constitute “waters” subject to federal regulatory control.

For 40 years, Congress has done nothing to resolve this critical ambiguity, and the EPA has not seen fit to promulgate a rule providing a clear and sufficiently limited definition of the phrase. Instead, the agency has relied on informal guidance. But far from providing clarity and predictability, the agency’s latest informal guidance advises property owners that many jurisdictional determinations concerning wetlands can only be made on a case-by-case basis by EPA field staff.

Despite repeated losses in the Supreme Court, the EPA and U.S. Army Corps of Engineers have yet to make any serious effort to delineate the scope of their regulatory jurisdiction. The latest guidance, issued in response to Rapanos, is no exception. This virtually assures the question of CWA regulatory jurisdiction will come before the Supreme Court yet again, and the ability of the Sacketts and other regulated landowners to challenge ACOs should only accelerate the process.

Some will argue that the availability of judicial review to contest administrative orders issued by EPA under the Clean Water Act will hamper federal enforcement efforts in the future. That’s due in significant part to the fact that the vast majority of federal actions to enforce the CWA take the form of such orders, rather than formal administrative hearings or federal litigation that are more costly, resource-intensive and time-consuming for EPA.

Be that as it may, my own opinion is that Scalia and the Court got this one right. The Sackett decision’s statutory analysis seems compelling, and the equities of this particular David-and-Goliath saga fall rather strikingly in favor of the Sacketts. I don’t often find myself in agreement with Justice Scalia, but I confess that I do here. One of Scalia’s closing observations in Sackett particularly resonated with me: “there is no reason to think that the Clean Water Act was uniquely designed to enable the strong-arming of regulated parties into `voluntary compliance’ without the opportunity for judicial review–even judicial review of the question whether the regulated party is within the EPA’s jurisdiction.”

Anyone thinking of applying to PERC's Enviropreneur Institute should watch this video of Chris Corbin, a 2008 PEI alum. In the video, Chris explains how property rights and markets allow environmentalists to keep water in stream and entrepreneurs to turn a profit while improving environmental quality.

As Chris says, his company, Lotic, LLC, helps farmers and ranchers "turn blue into green." For more on Chris, read his article in the new edition of PERC Reports.

Applications for the 2011 Enviropreneur Institute are due March 6th. Apply here.

When the washing machine is running, the sprinklers are on, and the kids are filling the bathtub, few Americans are thinking about how much water they are consuming. Under the current subsidized system of water allocation, Americans only spend approximately $474 a year on water, a price that does not reflect its true scarcity value.

In PERC’s latest video production Director of Applied Programs Reed Watson and Research Fellow Brandon Scarborough discuss the dynamic power of water markets. In contrast to the often acrimonious allocation of water, markets rely on prices and entrepreneurial action to reflect the true value of water. PERC scholars propose voluntary water exchange, conservation, and cooperation in lieu of water wars and bureaucratic water allocation.

Flexible price signals will thus encourage consumers to conserve water by bearing the full cost of their consumption. For example, as water becomes scarcer, the prices will go up and people will respond to those prices by conserving more water.

Watson and Scarborough’s new book, Tapping Water Markets, written with PERC Executive Director Terry Anderson, covers a wide range of topics including surface water allocation, groundwater management, environmental flows, and water quality trading. It concludes with predictions about the future of water scarcity and the ability of water markets to shape that future more positively.

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Founded 30 years ago in Bozeman, Montana, PERC—the Property and Environment Research Center—is the nation’s oldest and largest institute dedicated to improving environmental quality through property rights and markets.

The goal of PERC’s programs is to fully realize the vision of establishing “PERC University,” where scholars, students, policy makers, and others convene to expand the applications of free market environmentalism.

PERC's fellowships share a common goal of exposing new scholars, students, journalists, and policy makers to free market environmentalism, as well as enable scholars already familiar with FME to explore new applications.